September 14, 2013

Idle Maine tank cars indicate slowing oil-by-rail trend

By Tux Turkel
Staff Writer

YARMOUTH – Drivers who cross the Pan Am Railways tracks at the Route 115 overpass here have noticed them this summer: oil tank cars stretching as far as the eye can see.

click image to enlarge

Oil-tank rail cars sit idle and empty near Route 115 in Yarmouth, Maine on July 18, 2013.

Jill Brady / Staff Photographer

Why are the cars there? And when will they leave?

The 100 or so cars are empty, Pan Am Railways said Thursday. They have been parked on a storage track for a month. And they're not likely to move until global oil markets change.

"As soon as the customer requests them, they will go back out," said Cynthia Scarano, executive vice president of Pan Am Railways.

Scarano would not name the customer, but all of the crude oil that has been moving across Maine for the past two years has gone to the Irving Oil refinery in Saint John, New Brunswick.

Now that flow, hundreds of thousands of barrels a month at its peak, has slowed to a trickle.

Irving Oil doesn't discuss its business practices. But media reports and the sailing schedule at the Port of Saint John suggest that the refinery now is getting more crude by ship and barge.

Behind the shift is the difference between the price of crude oil from Canada and the United States and the price of overseas production.

The surge of oil production in Alberta's oil sands and North Dakota's Bakken field over the last two years has led to a scramble to get the crude to market. With several pipeline projects stalled by environmental and community opposition, oil shippers have taken to the rails with record volumes.

Maine has been part of that trend. Millions of barrels moved on Pan Am Railways tracks and, until the derailment and deadly explosion of a train carrying crude July 6 in Quebec, on the Maine, Montreal & Atlantic Railway.

But the oil-by-rail trend, which raised public concern after the disaster in Quebec, began slowing this summer.

Wholesale petroleum prices on commodity markets reflect benchmarks pegged to where the oil originates.

Early last winter, the benchmark for domestic crude had a $23-a-barrel price advantage over imported oil. But in the past six months, the spread between two benchmark crude prices -- one for domestic production and the other for North Sea oil -- has narrowed almost to parity.

Oil prices are volatile, and many analysts expect the spread to widen again. But for the moment, the price advantage that prompted Irving Oil, Canada's largest refinery, to bring in crude by rail has faded.

That shift is being felt by Pan Am Railways. In March, it moved more than 385,000 barrels of crude headed to Irving Oil. This month, only a small fraction of that is scheduled to move.

The slowdown is visible to railroad watchers, said Steve Boyko, who writes about the industry on his blog, Confessions of a Train Geek.

Boyko, who is in contact with a colleague who lives near the Pan Am Railways tracks on the Maine border in McAdam, New Brunswick, said the long strings of black oil cars known as unit trains are no longer running. Instead, he sees a few oil tankers mixed into a freight train.

"His observation is that there's very little oil coming through," Boyko said.

Irving also can receive crude over Canadian National Railway tracks, which run north of Maine. Canadian National Railway said earlier this summer that it expected oil by rail to keep increasing, but that the picture could change if narrow price spreads continued.

Even when oil-by-rail was at its peak, Irving Oil was receiving most of its supply by sea.

The refinery has the capacity to make 300,000 barrels of gasoline, heating oil and other petroleum products a day. A rail tank car holds about 700 barrels of oil. So even if the 100 tank cars now parked in Yarmouth were full and headed to Saint John, they would meet only a fraction of the refinery's daily needs.

(Continued on page 2)

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